Wednesday, December 19, 2007

Here's another New York Story. The person who submitted it didn't give me a pseudonym to use so I have taken the liberty of calling her Bama Babe, and hope she won't mind! She's given us a wonderfully detailed look at her financial biography:

Here’s my New York story/life in a nutshell.

Background: 26-year-old single female; born and raised in southern Alabama ; graduated from the University of Alabama in 2004 with majors in public relations and economics. I moved to NYC in July 2004 to work at a financial services PR agency, and I have been employed by that agency ever since.

Salary history: In my entry-level position, my salary was $32,500. The good thing about PR agencies is that you can generally be the master of how quickly you rise, so now a little over 3 years later, I am a senior account executive making $57,000 annually. Our firm’s comp scheme is based a lot like the financial companies we represent, so we also get annual bonuses. These are obviously discretionary and vary from year to year, but my bonus last year was $22,000. I expect something in the $20-25,000 range this year, but I won’t know for sure until bonuses are paid in March.

Major expenses: Clearly, rent is the biggest expense for someone in NYC. I live on the UES in a two-bedroom apartment, and my share of the rent is $1300 per month. Utilities, cable and cell phone probably comes out to about $120 per month total. I make monthly student loan payments of $170 and have some minor medical expenses as well. I work in midtown and typically walk to and from work, so I don’t need to buy an unlimited Metrocard. I usually just get one with a set amount of money on it through the pre-tax TransitCheck program that my job offers. Gym membership at NYSC is significantly subsidized, and my health insurance will reimburse me for $400 per year, if I complete a minimum number of work-outs.

Credit card debt: I have one credit card that I use sparingly for plane tickets home and expenses related to friends’ weddings (there are plenty of those!). The balance right now is about $3000 and I pay about $250 per month towards that balance. My past practice has been to pay off the balance in full with my bonus from work, and I plan to do that again this year.

Food/fun: As you know, much of NYC’s social activity revolves around food. I’m very careful to pack my breakfast, lunch and a snack every day to take to work and to cook dinner at home every night, unless I have plans with friends. I’d rather eat simple foods at home and then be able to go out and have fun with friends than let my money slip away on $10 sandwiches for lunch and random take-out for dinner and not have anything left for a nice dinner out every once in a while. When we go out, I’ll usually have one quality cocktail that I really enjoy and then switch to club soda or something. I need to limit my alcohol consumption due to some medicines I am taking, so it’s not hard to avoid blowing $100 on drinks in one night.

Savings/retirement: I contribute 10% of my paycheck to my 401k and earn the full company match of 2.5%; current balance is just over $10,000. The bulk of my bonus (after paying off my credit card) is dumped into a mutual fund account that currently has a balance of roughly $13,000. Earlier this year, I opened an ING Direct savings account to earn a higher interest rate than my Wachovia savings account, and I have $250 per month automatically deposited into that account.

Overall, I think I’m on a pretty good track. I’m not rapidly building savings, but I’m also not throwing my money away on stuff I don’t really need. I enjoy shopping for clothes from time to time, but most of what I buy is on sale. My big weakness is make-up and skin care products, and I can easily rack up a big bill at Duane Reade! J My big annual treat is a piece of jewelry from Tiffany’s. My annual bonus is split three ways: credit card bill, savings, Tiffany celebration ring. I think it’s important to reward yourself, and I would rather do that with selective purchases that will last forever. I could take the same amount of money and go on a shopping spree for clothes and shoes I won’t like next year, or turn it into extra savings…or buy a gorgeous diamond band that will make me smile every time I look at it and remind my why I’m working so hard. (I’m also a sucker for the little blue box, but really, who isn’t?)

At some point next year, there is a very real possibility that I will trade in my current job for a job working as a regional recruiter for a state university. The salary will definitely be less than what I am currently making, and I don’t believe there are annual bonuses. Since I started out at $32,500, I know that it is definitely doable to live on $40-45,000 (my estimate of the salary range for this particular job). If I find a cheaper apartment, I think it will all balance out. The upside in switching jobs is that I would love the new job so much more, I would have more flexible hours, and I would more than double my vacation time. I’m at the point where I really want to improve my quality of life, rather than just fight my way up the corporate ladder with salary as the only “carrot.” So we’ll see. In the meantime, I am trying to save as much as possible, so that I have a cushion in case I do switch jobs and need some time to adjust to the smaller paycheck.

As for the logistics of my spending, I pay my bills as soon as they come in and I give myself a cash allowance for the week. That really helps minimize mindless spending because when the cash is gone, I’m done for the week. It’s a very tangible way to monitor how much you are spending—really, it’s the only way that works for me. I used to play fast and loose with my debit card (which I still use occasionally, in emergencies) and I would easily spend more than I needed to. When cash is gone, it’s gone. With plastic it seems like there’s always “more.”

What’s great about New York is that you don’t have to rake in the big bucks to enjoy the culture and diversity that the city is known for. There are so many free or cheap events, especially during the summertime, that people making lower salaries don’t have to sit at home eating peanut butter all the time because they can’t afford to go anywhere. The New York Philharmonic gives lovely free concerts in Central Park in the summer, you can watch movies in Bryant Park, you can just walk around and explore areas like Chinatown, soak up the history of Greenwich Village, visit any number of free museums, play sports in one of the many parks, etc. Now that I’m “big time” (ha!), I joined the Museum of Modern Art for $75 per year. I can go to the MoMA anytime I want for free, bring guests for a reduced price, get early admission to exhibits, and all kinds of other perks.

It is absolutely possible to live here and have a full life without making hundreds of thousands of dollars a year. Most of my friends work on Wall Street in some capacity, and in the beginning it was rough to see them arrange for summer rentals in the Hamptons while I was living paycheck to paycheck. The longer I live here though, the more I realize that I’m not willing to take on the long hours and stressful atmosphere of a Wall Street job just to earn exorbitant amounts of money. I’d rather be smart about managing what I have and be content with having free time to enjoy life. My friends may have more money but they don’t seem happier. I’m at a comfortable point where I can build savings and not struggle to get from paycheck to paycheck, and I’m perfectly content to continue on like this.

I’m sorry this got so long! I just started typing and somehow couldn’t stop. I’m sure it will take you a while to sift through all the responses, but I’m looking forward to reading your postings related to this topic. It will be fascinating to read about how fellow New Yorkers manage their money here. Maybe I’ll be able to pick up some tips!

Bama Babe's story reminds me a lot of my own, though she's making a lot more money than I was at her age! She likes to be frugal about some things but give herself some treats too, all while prioritizing retirement savings. I love her sense of balance-- this is always important, but I think particularly so in NYC, where you can drive yourself insane if you focus too much on keeping up with the Wall Streeters!

I forgot to add, at your age, you should first contribute up to your company's match in your 401k (2.5%), then max out your Roth IRA. If you have any extra money to invest for retirement, then put it in your 401k.

Thanks for the feedback, and thanks to Madame X for posting my story! The Roth IRA is an interesting idea that I've considered, but I'm planning on using the mutual fund money to pay for my wedding (one of these days). My dad passed away and Mom's not really in a position to finance a fancy wedding, so my future fiance and I would need to have something set aside ourselves. I'm not sure I'd be able to access it for wedding expenses if I put it in an IRA. Maybe I could split the mutual fund contributions and keep putting half in that account and half into a Roth IRA, up to the match. Food for thought!

bama babe: so in your case, since you need to keep the extra money liquid for a future expense (5 year horizon), you can just adjust your 401k contributions. you're currently contributing $5700/year to your 401k; you can scale that down to your employer match and use the rest to max out your Roth IRA (up to $4000 for 2007). That would also allow you to hedge your retirement income w/both pre-tax and after-tax dollars. By that I mean you be taxed on your 401k withdrawals, but you won't be taxed on your Roth IRA withdrawals.

Bama Babe - you are certainly on the right road...and you didn't need to steer back on to it like some of us!

Large bonuses that you cannot count on the amount, are really hard to manage. I try to use mine to pay down debt as well as pay for yearly expenses by putting the money away (like my property taxes). That way I know I have it and I am earning interest as well!

tally girl: there are a lot of families making under 100k who own their own home. they just had to buy before the recent housing boom. i.e. my mom's high school friend raised a family in Manhattan 3bd co-op right near all the federal buildings. they make well under $100k/year, but I bet it's worth well over $2 million. how did they do it? they bought it in the 1970's and already paid off their mortgage =p

I've been ranting recently on my blog about how expensive it can be in NY. It's so nice to read about others who are managing to get by.

While it is true that you can squeak by in NY, it takes effort. As everyone's said, housing is the biggest issue. It's best if you can find an affordable apt or split the rent.

Cooking your meals is a great help. It helps, though, if you don't have a life-consuming job and if you have some routine. If you're commuting back and forth to a boyfriend or girlfriend's place, for instance, it's a bit harder.

About Me

My name is Madame X, and I am a 40-something single woman living in Brooklyn, NY. I write about how much money I make, what I spend it on, how much I save, how I budget, my home-buying experiences, my financial goals and ambitions, my thoughts on class and what it means to be rich or poor, and anything else that relates to money. (More about me here, here, and here.)If you take any of my advice, do so at your own risk as I am not really qualified to give it. If you have advice to share, please do, and many thanks!Ad proceeds from this site are donated to worthy causes.